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State revenues fall in the red in first quarter of fiscal year

AUGUSTA, Maine — State revenues are behind projections by nearly $27 million, with not a single revenue category meeting expectations in September, at the end of the first three months of the budget year.

“All three of our top lines and other large lines on the revenue side are down in September,” said Finance Commissioner Sawin Millett in an interview Monday. Among the top revenue sources are the individual income tax, sales tax, corporate income tax and the tobacco taxes.

“It certainly is not a positive picture for either the September collections or the three months to date compared to our budget,” he said.

The largest source of taxes is the individual income tax, projected to bring in more than $1.4 billion this budget year. In September, estimated income taxes paid by both the self-employed and withholding payments were below estimates, putting the income tax $4.7 million in the red after three months.

The second largest source of tax revenue is the sales tax, projected to bring in a little more than $1 billion this budget year. It was slightly below estimates in September, down $943,000, and for the three months is below estimates by $9.5 million, although Millett said most of that was from a one-time adjustment to meet accounting rules made in August.

“The individual income tax was down by $6.2 million in September alone,” Millett said, “and most of that is in withholding and that is always a concern because that is a relatively current barometer of what payrolls are showing.”

He said the corporate income tax is below estimates by $13.2 million after three months, which he attributed in part to companies taking advantage of changes in the tax code that allow faster deductions for investments in equipment.

“Some of that also shows up in the individual income tax because so many small businesses are pass-through entities where they pay the income tax on the business through their individual income tax,” he said.

Rep. Peggy Rotundo, D-Lewiston, the lead Democrat on the Appropriations Committee, said those tax cuts are just the first of many that will result in less state revenue during the next two-year budget cycle.

“We’re estimating a loss of $399 million over the two years,” she said. “This is a very troubling picture.”

Rotundo said with all of the major revenue sources behind estimates after three months, she is very concerned there may be a trend developing and not just “month-to-month blips” in state revenue. She said part of the revenue shortfall can be attributed to tax cuts.

“The sales tax is very soft and that concerns me,” she said. “It’s a very good indication of what average Maine families have in their pockets to spend.”

Sen. Richard Rosen, R-Bucksport, the co-chairman of the Appropriations Committee, said he also is concerned about the soft revenues. But he said while most of the report is bad news, there are a few bright spots.

“We see that the restaurant and the lodging tax is up over last year,” he said. “That is an indication that we have had a better tourism season than many expected.”

But those two subgroups of the sales tax make up a small percentage of all the sales tax revenues. Other areas have little growth and building supplies were off by nearly 4 percent.

Rosen said he is disappointed with the overall revenue numbers from the first three months of the budget year. He said income tax withholding is a concern because it reflects the health of the consumer economy.

“The number of people employed and the hours of the work week are critical to the ability of the economy to provide people with disposable income,” he said.

Millett said he would not speculate on whether the revenue forecasting committee would re-project revenues when they meet next month. He said that depends in part on the economic forecast the Consensus Economic Forecasting Commission develops.

“There are so many areas where we are failing to meet projections,” Rotundo said. “We have a soft economy and a significant problem.”